Key Person Insurance - Explained
What is Key Person Insurance?
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What is Key Person Insurance?
This is a life insurance policy bought by an organization on the life of one of its key executives. The organization pays the policy premiums and is the sole beneficiary in case of the death of the executive. It usually referred to as key man insurance,' business life insurance' or key woman insurance.'
Back To: INSURANCE & RISK MANAGEMENT
How is Key Person Insurance Used?
This type of insurance policy is usually purchased if the unexpected death of a principal executive would result in a significantly negative impact on the operations of the company. The company uses the amount paid upon the death of the executive in buying time to find a replacement or implement corrective strategies that may save the business. The key person in a small business usually is the owner, founders or a key or few key employees. The key person is determined by the fact that their absence would amount to the sinking of the company. In such cases, key person insurance is considered.
How Key Person Insurance Works
The company purchases the policy on its key executives, pays the premium and is the beneficiary of this policy. If death occurs, the insurance firm pays off the policy to the company. The company uses these funds in a variety of ways including paying off debts, paying severance to employees, distributing money to investors and also shutting down the business in the correct procedure. This insurance policy provides companies with several options apart from bankruptcy. The top officials of companies consider an irreplaceable employee in the short term to decide if the company should consider such coverage. In most small businesses, the owner does most of the work so without him/her the business would dissolve. The amount of insurance needed depends on the business although usually, companies ask for quotes on $100,000, $250,000 up to $1 million policies and then compare the costs associated with each policy.
Categories of Loss Covered by Key Person Insurance
The losses arising from an extended period in which the key person is not able to work but is still alive.
- Insurance to safeguard profits such as losses that may arise from the delay or cancellation of a business project in which the key person is a part of.
- Insurance to protect the interests of shareholders or a partnership. It allows the shareholders or partnership interests to be bought by the existing shareholders or partners.
- Insurance for people who are a part of guaranteeing business loans or banking facilities. The value of the insurance coverage is adjusted to be equivalent to the value of the guarantee
- What is insurance?
- Captive Agent
- Independent Agent
- Captive Insurance Company
- Combined Ratio
- Claims Adjuster
- Capital at Risk
- Assigned Risk
- Incurred But Not Reported
- Qualified Actuary
- Cession (Re-Insurance)
- Burning Cost Ratio
- What is an insurance contract?
- Accidental Means
- Anti-stacking Provisions
- What is an insurable interest?
- What are the common categorizations of insurance?
- National Association of Insurance Commissioners
- Insurance Regulatory Information System
- American Academy of Actuaries Definition
- American Association of Insurance Services Definition
- American Council of Life Insurance Definition
- American Insurance Association Definition
- American Risk and Insurance Association Definition
- LLoyd's of London
- Associate in Insurance Services (AIS) Definition
- Associate in Loss Control Management Definition
- Associate in Marine Insurance Management Definition
- Associate in Personal Insurance Definition
- Associate in Reinsurance (ARe) Definition
- Associate in Risk Management Definition
- Associate in Commercial Underwriting Definition
- Associate in Insurance Accounting and Finance Definition
- Associate in Surplus Lines Insurance Definition
- Chartered Insurance Professional Definition
- Chartered Life Underwriter Definition
- Chartered Property Casualty Underwriter Definition
- Vehicle insurancePrivate Passenger Auto Insurance Risk Profile
- Underinsured Motorist Coverage
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- Omnibus Clause
- Health Maintenance Organization
- Capitated Contract
- Point of Service Plan
- Children's Health Insurance Program
- Disability Insurance?
- Credit Disability Insurance
- Life Insurance?
- Cash Surrender Value
- Absolute Beneficiary
- Acceleration Life Insurance
- Accelerated Benefit
- Accelerated Option
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- Charitable Gift Life Insurance
- Incontestability Clause
- Waterfall Concept
- Assumed Interest Rate
- Clean Sheeting
- Hazard Insurance
- Homeowners, Renters, and Fire Insurance?
- Participating Community (Flood Insurance)
- Insurance Considerations for Business
- Business Liability Insurance
- Commercial General Liability
- Liability Risk Retention Act
- Excess Insurance and Umbrella Insurance Policy
- Business Interruption Insurance
- Key Person Insurance Definition
- Own-Occupation Policy
- Self-Funded Health Insurance Plan
- Basket Retention Policy
- Commercial Blanket Bond
- Alternative Risk Transfer Market Definition
- Commercial Property Casualty Market Index Survey
- What are the primary obligations of the insurer?
- Earned Premium
- Reservation of Rights Letter
- Collateral Source Rule
- What are the primary obligations of the insured?
- Insurance Premium
- Affidavit of Loss
- What is the general structure of an insurance contract?
- Ambiguity Principle
- Accommodation Line
- What are the common disputed provisions in an insurance contract?
- Absolute Exclusion
- All Risks Clause
- What is required for the termination of an insurance contract?
- Risk Management
- Professional Risk Manager
- Associate in Management (AIM)
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- Forecasting (Business)
- Objective Probability
- Unconditional Probability
- Enterprise Risk Management (ERM)
- Operational Risk
- Business Recovery Risk
- Political Risk
- Asset Protection
- Performance Bond
- Barra Risk Factor Analysis Definition
- Above Ground Risk (Mining Industry)
- Bumbershoot Policy (Maritime)
- Abandonment Clause (Boat or Vessel)
- Bobtail Liability Insurance (Trucking Industry)
- Anti-Indemnity Statute (Construction)